Cash Advance Industry Looks Towards Trump for Regulatory Reprieve
The cash advance industry has been under fire for several years. Critics charge that the rates are excessive and that borrowers can become trapped in a cycle of debt. In June 2016, the Consumer Financial Protection Bureau released its proposed rules to regulate lenders how offer payday, title, personal installment and cash advance loans. The rules would get started to all lenders offering short-term loans, including credit unions making loans in person, payday lenders operating storefronts and lenders offering cash advance online loans. However, there is some speculation that a Trump presidency may help the beleaguered online cash advance industry as well as traditional lenders offering similar products.
Why Trump’s Presidency Could Help the Cash Advance Online Industry
Throughout his campaign, Trump repeatedly denounced the CFPB and the legislation that authorized its creation, the Dodd-Frank Act. He has stated his belief that the Dodd-Frank is harmful to business growth as it is a “negative force” that “makes it impossible” for banks to function and for bankers to loan money for companies to create more jobs. On numerous occasions, Trump has vowed to “dismantle” or repeal the Dodd-Frank. Because changes to laws that have been enacted require the approval of Congress, Trump’s antipathy toward the Dodd-Frank Act might have been academic had the Democrats won control of either or both houses. However, since the Republicans will control Congress, Trump’s efforts to reform the Dodd-Frank and rein in the CFPB may meet with success.
Trump Has Proposed a Moratorium on Financial Regulations
During a speech made in August 2016, Trump stated that he would issue a moratorium on any new agency regulations, including new regulations from the CFPB. In an article appearing on AmericanBanker.com, analysts disagreed on how Trump might fulfill this goal. Some analysts stated that it might be too late to revoke or delay many of the regulations proposed under the Dodd-Frank. However, other analysts believed that Trump would have the tools to block or slow down new regulations. For example, he could leverage the Office of Management and Budget to bring pending regulations to a grinding halt. Legal scholars also believe that the White House Office of Information and Regulatory Affairs has the authority to review regulations and order a moratorium.
Republican Control of Congress May Help the Online Cash Advance Industry
Trump will not be alone in the fight to ensure that anyone who wants to obtain a cash advance online will have the opportunity to do so. Most Republicans in Congress have opposed the CFPB since its creation.
President Obama’s move to install Richard Cordray as the head of the CFPB as a recess appointment was viewed by many Republicans as a blatant abuse of executive power. A month earlier, Republicans in the Senate had filibustered Cordray’s nomination; by making a recess appointment, Obama was able to bypass the Senate and install his nominee. Although the Constitution is not explicit in defining the length of time required for Congress to be in recess before a president can make a recess appointment, in the last 20 years, no president has made such an appointment during recesses lasting less than 10 days. Obama made three other recess appointments during the same Senate break; the other three appointees were nominees to the National Labor Relations Board whose appointments had been blocked.
However, it was not just Obama’s “end run” appointment that concerned Republicans. As defined by the Dodd-Frank Act, the CFPB was organized with a single director who was not subject to presidential oversight or control and who could only be removed for cause. These protections were ruled unconstitutional in October 2016; the court ruled that consolidating power in a solitary individual who could not be removed by the president marked a dramatic departure from precedent. Although the CFPB is appealing the ruling, as matters currently stand, Trump could replace Cordray as soon as he is inaugurated. It is also possible that Cordray could choose to resign before or shortly after Trump takes office.
If Trump installed a like-minded director, the new director could simply refuse to finalize the rules on cash advance online loans and similar short-term, small-dollar credit products. If Cordray chose to remain at the CFPB, Republicans could opt to invoke the Congressional Review Act to disapprove the proposed regulations. Under the terms of the Congressional Review Act, Republicans would not need a filibuster-proof Senate as a simple majority would suffice.
Congress could also choose legislation to counter the effects of the CFPB. New legislation could replace, amend or revoke the rule. Another possibility that has widespread support is to restructure the CFPB, replacing the sole director with a bipartisan committee. The most popular model is to have a five-member committee; this would give the Republicans three committee members and the Democrats two committee members.
Trump and Republicans Likely to Face Opposition
Regardless of the possibilities, however, it should not be implied that Trump will be given a free hand when it comes to online cash advance loans or the CFPB. Sen. Elizabeth Warren, the driving force behind the creation of the CFPB, visited the agency’s headquarters the day after the election, according to Bloomberg. During her visit, Warren reportedly vowed to fight any attempts to alter the structure of the CFPB or to revise or delay the pending regulations for cash advance loans.
Trump will also have to deal with public opinion. Although many people who have never obtained an online cash advance oppose them, few of these people knew a great deal about the CFPB. However, the CFPB was thrust into the spotlight in September 2016 after the agency fined Wells Fargo $100 million. Apparently, bank employees covertly opened accounts for customers and funded the accounts by transferring money from the customers’ existing accounts — all without the customers’ knowledge or approval. In addition to the $100 million to be paid to the CFPB, Wells Fargo will be required to pay a total of $85 million to the City and County of Los Angeles and the Office of the Comptroller of the Currency as well as make full restitution to its victims.
News about the fines met with widespread public approval. Many consumers have not forgotten — or forgiven — the financial crisis of 2008 that took an extensive toll on retirement accounts, drove up the rate of home foreclosures and left many investors in dire financial condition. Since most people blame the big banks for the crisis, the news that the CFPB had taken a bite out of Wells Fargo earned the agency more than a few fans. Trump will need to balance the current level of support for the CFPB against the need to bring the agency under control and ensure the availability of cash advance loans for consumers who want and need them.
The 2008 financial crisis unsettled the country and caused President Obama to request regulatory action reining in Wall Street. In 2010, legislators introduced the Dodd Frank Act to protect consumers. The act brought about ways to prevent another Lehman Brothers incident and decrease the predatory lending practices of the online cash advance industry. When President Donald Trump entered the White House, he announced his intentions to do away with Dodd Frank. His vow means that the online cash advance industry may find regulatory reprieve under Trump.
Under Trump, the Online Cash Advance Industry May Receive Salvation
To decrease Dodd Frank’s regulatory bite, President Trump signed an executive order. As he was signing it, he said, “Today, we are signing core principles for regulating the United States financial system.” According to the Trump administration, the president’s executive order consists of comprehensive principles that are designed to foster economic growth while making it possible for the country’s corporations to compete effectively against their foreign counterparts.
It is worth noting that Trump met with a group of well-known CEOs before the executive order was drafted. This group included Jamie Dimon. Trump said, “There’s nobody better to tell me about Dodd Frank than Jamie.”
Dodd Frank forced financial institutions to endure a host of new regulations while shaving their profitable but illiquid hedge fund and private equity investments. In the finance sector, a few mid-sized banks experienced the might of Dodd Frank. However, it was organizations with billions in assets that felt the full weight of the act along with the entire cash advance online industry.
Forbes reported that not only are financial institutions lobbying for decreased regulations, but banking industry trade organizations are also pushing the president to rollback regulatory oversight on smaller lenders. If he agrees, then the online cash advance industry may receive a much-needed lifeline.
Causing Conflict Between Politicians in Washington
The Dodd Frank Act has become a constant source of conflict between Washington politicians. Republicans allege that the act’s strict rules for financial institutions are hampering the sector’s growth.
Democrats also have a few problems with the legislation. On their side, the complaints have run to whether or not some areas of the law are too broad, causing small and community banks to endure a lopsided regulatory burden compared to large institutions. Despite their reservations, democrats are sure to resist calls to repeal or scale back the Dodd Frank Act.
If the republicans get their way, then cash advance online lenders are sure to breathe a sigh of relief since fewer regulations make it easier for them to stay in business. While they can be predatory, cash advance online providers have earned their place by delivering a needed service to people who have bad or no credit.
What Does this Mean for Online Cash Lending?
Institutions that engage in online cash lending are sure to welcome a change to the last administration’s policies regarding their industry. When Dodd Frank came to town, it brought regulatory bodies like the Consumer Financial Protection Bureau, or CFPB, and the Financial Stability Oversight Council, or FSOC, with it.
Lawmakers created the FSOC to assist large firms that are beginning to fail with the goal of preventing a government bailout or financial crisis. As far as the CFPB goes, the agency was established to protect consumers from financial products that are misleading or abusive.
Last year, a federal appeals court ruled that the agency’s structure was unconstitutional and that Richard Cordray, the agency’s director, has access to “massive, unchecked power,” meaning that he is able to act without reporting to the president. Because of this, the court confirmed that the president should be able to remove Cordray from his post. Under Trump, the current regulatory system is set to change, and it is poised to do so drastically.
A Fox in the Hen House?
Trump has tapped Gary Cohn as the White House Economic Council Director. Cohn is the former president of Goldman Sachs. As such, his name carries plenty of weight on Wall Street. In speaking of Dodd Frank, he said, “We have the best, most highly capitalized banks in the world, and we should use that to our competitive advantage. But on the flip side, we also have the most highly regulated, overburdened banks in the world.”
Cohn gave television interviews and spoke to newspapers about the onerous regulations. He said, “We’re going to attack all aspects of Dodd Frank. We want banks to be back in the lending business.”
Senator Elizabeth Warren was unable to restrain herself from commenting on Cohn’s involvement. She called for Cohn to recuse himself from anything related directly or indirectly to Goldman Sachs. According to reports, Cohn received a $285 million compensation package when he left the Wall Street firm.
The Administration is Preparing for Big Regulatory Changes
The White House administration claims that big regulatory changes are on the way. While this may be true, The Atlantic reports that instead of the administration enacting a broad repeal, it is taking a measured, piecemeal type approach to dialing back or modifying the previous administration’s legislative provisions. For instance, Trump’s executive order allows the administration to focus on making changes to the FSOC. Cohn stated that the administration is targeting the agency because it failed to build an effective way to help faltering firms without government assistance.
President Trump also wrote that his administration’s new regulations must “restore public accountability.” According to CNN, this is a veiled reference regarding the CFPB. Republicans claim that the agency doesn’t have the proper oversight to continue. Sean Spicer, the current White House press secretary, referred to the CFPB as an “unaccountable and unconstitutional new agency that does not adequately protect consumers.”
The Online Cash Advance Industry Has Been Making its Own Changes
Because the CFPB has targeted the cash advance online industry, these lenders have been making drastic changes to their business models. To stay in business, many of them are moving to installment loans. With Trump enacting executive orders, online cash advance providers may be able to return to their previous way of doing business.
When it comes to taking out a cash advance online, administrative higher-ups may not be aware of the convenience this service provides. Increased regulation against the cash advance online industry means that those who need emergency funds may not be able to gain access to them.
Because the funds provided by an online cash advance are usually available within a day or two, the service is a lifesaver for many.
Trump Made a Promise to Shake Up the Establishment
Trump’s promise to shake up the establishment should have the online cash advance industry feeling more confident about its financial future. However, when considering the recent healthcare debacle, the new White House administration is clearly having trouble bringing its agenda to fruition. If it is able to roll back Dodd Frank and decrease financial regulations, then the online cash lending industry will likely remain intact.
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